The S&P/TSX composite index dropped 173.22 points to 13,731.9 with losses spread across all sectors save health, partly because investors are unsure how badly lower oil prices will impact the Canadian economy.
The IEA cut its forecast for global oil demand growth by 230,000 barrels a day, to 900,000, citing lower expectations from oil-exporting countries. The January crude contract in New York moved down $2.14 to a fresh, five year low of US$57.81 a barrel. Prices dropped 18 per cent this week and analysts are unable to say where the price bottom will be.
"The (oil) market is in free fall essentially because there is no clarity on when supply will be cut," said Kash Pashootan, portfolio manager at First Avenue Advisory in Ottawa, a Raymond James company.
The Canadian dollar fell 0.33 of a cent to 86.42 cents US.
U.S. indexes were also lower after data showed that growth in China's factory output declined further in November. Although industrial production was up 7.2 per cent compared with the same month last year, it was down from October's 7.7 per cent growth and September's eight per cent rate.
China's economic growth slowed last quarter to a five-year low of 7.3 per cent, below the official full-year target of 7.5 per cent.
The Dow Jones industrials fell 315.51 points to 17,280.83, the Nasdaq gave back 54.56 points to 4,653.6 and the S&P 500 index was down 33 points at 2,002.33.
The Toronto stock market fell heavily this week, down 742 points or 5.1 per cent, leaving the index well into correction territory, having fallen more than 12 per cent from summertime highs.
The Toronto market's main index is barely 100 points or 0.8 per cent away from where it started the year.
On Friday, the TSX energy sector dropped 1.1 per cent.
The energy sector has been a huge weight on the TSX, plunging 30 per cent year to date, reflecting a drop in oil prices of about 45 per cent since mid-year amid lower demand and far higher supplies, a situation made all the worse by OPEC's refusal to cut production.
Talisman Energy (TSX:TLM) was a big positive for the TSX energy sector Friday. Its shares soared 18.3 per cent to $5.04 after the Financial Times reported that Spanish oil group Repsol is in talks to acquire Talisman in a deal that could value the Calgary company’s equity at up to US$8 billion. It says the price being negotiated is in a range between $6 and $8 per share, which would represent a premium of up to 117 per cent to Talisman’s share price Thursday.
Like other energy companies, Talisman's shares have been hit hard by falling oil prices and are down sharply from their 52-week high of $13. And analysts think other companies will also become ripe takeover targets while the market sorts out where oil prices should be.
"We’re getting to a stage now where we’re going to see more in the way of consolidation and mergers because, for companies looking at buying another company, everything is on sale," Pashootan said.
Elsewhere on the TSX, the base metals sector dropped three per cent even as March copper was up a penny at US$2.93 a pound.
The gold sector faded 1.75 per cent with February gold off $3.10 to US$1,222.50 an ounce.
The financials group fell 1.35 per cent as investors consider the exposure of the banks to weaker energy companies.